Global Markets for Verified Legal Wood Products: Are SMFEs Prepared? Kerstin Canby Forest Trends May 2013

Transcription

1 Global Markets for Verified Legal Wood Products: Are SMFEs Prepd? Kerstin Canby Forest Trends May 2013

2 Which Which Market Shifts in Europe, USA, Japan How important their consumer s to global trade? Objective of presentation: Explain changes in for wood products exported to Europe, United States, Japan and Australia. For SMFEs (or in fact any) businesses wishing to export wood products to high value s in the US and Europe, verification of legality may be a challenge, particularly for products manufactured from imported wood sourced from countries with poor forest governance.

3 Source: FII Ltd/European TTF analysis of Eurostat data

4 Which Which Market Shifts in Europe, USA, Japan How important their consumer s to global trade? 1. Consumer demand for sustainable wood products 1990s: European and American consumers started demanding wood products certified for sustainability.

5 Which Which Market Shifts in Europe, USA, Japan How important their consumer s to global trade? 1. Retailer demand for certified wood products (FSC, PEFC) Retailers interested in corporate social responsibility (CSR) and protecting reputation, starting in 1990s. FSC and PEFC certification standards developed, which include independent 3 rd party verification and chain-of-custody (CoC). Many national standards were also developed during this time. Certification is still a requirement for many retail buyers today.

6 Which Which Market Shifts in Europe, USA, Japan How important their consumer s to global trade? 1. Retailer demand for certified wood products (FSC, PEFC) Major international companies, such as WalMart or IKEA, now require suppliers to be able to not only document country of origin of timber sources, but also demonstrate sustainability through the use of third-party certification systems. Many doing risk profiling of their sources. The UK Timber Trade Federation established strict purchasing policies for all its members, which resulted in several contracts with Indonesian and Chinese suppliers being cancelled.

7 Which Which Market Shifts in Europe, USA, Japan How important their consumer s to global trade? 2. International fora focus shifted from dialogue on sustainability to legality of timber trade G-8: 1998 Foreign Ministers launched Action Programme on Forests that featured illegal logging FLEG Ministerial Conferences committing producer and consumer countries to actions to combat illegal logging (Africa, SE Asia, Europe and North Asia) 2002 present: Major FLEG workprograms at ITTO, World Bank, FAO, ASEAN, CIFOR, etc. G-8: 2005 Environment & Development ministers committed themselves to actions to combat illegal logging

8 Which Which Market Shifts in Europe, USA, Japan How important their consumer s to global trade? 3. Green procurement policies for public works Mid 2000s: UK, Denmark, Germany, France and other European countries require 3 rd party evidence of legality of wood used for government contracts Japan has its own procurement policy (GoHo wood) Increasingly, European governments 3 rd party evidence of sustainability.

9 Which Which Market Shifts in Europe, USA, Japan How important their consumer s to global trade? 4. Amendments to the US Lacey Act (2008) Makes it illegal to import or sell any timber product taken in violation of laws of the United States OR any foreign country FOR THE FIRST TIME: jail, forfeiture or fines Requires declaration of origin and species. Introduces concept of due c : punishment depending on degree to which a company knew or should have known it might be handling illegal wood products.

10 Which Which Market Shifts in Europe, USA, Japan How important their consumer s to global trade? 4. Amendments to the US Lacey Act (2008) In 2010, Gibson Guitar was the first case investigated by the US Department of Justice (Madagascar mahoghany) In 2011, a shipment of ebony and rosewood fingerboards being shipped from India to Gibson Guitars was seized due to questions about the legal sourcing of these products USDOJ is refraining from enforcement actions. Wake up call!

11 Which Which Market Shifts in Europe, USA, Japan How important their consumer s to global trade? 5. EU Timber Regulation (March 2013) Requires operators who first place timber products on the EU to undertake due diligence such as risk assessment of illegality. Makes it an offense to place illegal forest products on the EU. Like US Lacey, no specific certification or verification standard gets a green light except FLEGT licensed timber.

12 Which Which Market Shifts in Europe, USA, Japan How important their consumer s to global trade? 6. Australia Now has its own legal against the import and processing of both domestic and imported timber. Very similar to the EU Timber Regulation and US Lacey Act with due diligence requirement where importers must conduct risk assessments and ensure legality.

13 Which Which Same Same but Different How important their consumer s to global trade? All have similar, but slightly different, All sh some fundamental similarities such as demonstration of due c or due diligence All sh the requirement that operators must be able to document the source of origin of the harvested wood. Most retailers looking for 3 rd party verification from a robust, interantionally recognized standard. Credibility is an important asset

14 Which Which Certification & FLEGT licenses How important their consumer s to global trade? No international certification or verification standard (FSC or other) is officially acknowledged by the US government or EU as being automatically compliant with Lacey or EUTR However it is very likely that both EU and US systems will be well covered by robust, high quality systems which use 3 rd party verification and have high standard of definition of legality as defined by stakeholders.

15 Which Which Risk Profiling based on TI CPI How important their consumer s to global trade? Assume high risk of exposure to illegal trade in imports from country TI CPI < 50 Inconsistencies exist Simple and transpnt Some evidence of link between CPI & illegal logging

16 Which Which How important their consumer s to global trade? Sourcing teak: high risk countries Governance Index for Top 13 Teak Producing Countries 0% 1% 43% 56% Quartile 1 (ranking 1-43) Quartile 2 (ranking 44-87) Quartile 3 (ranking ) Quartile 4 (ranking )

17 Which Which Risk Profiling How important their consumer s to global trade?

18 Which Which Risk Profiling How important their consumer s to global trade?

19 Which Which Risk Profiling How important their consumer s to global trade?

20 Which Which How important their consumer s to global trade? SMFE Opportunity or Challenge? As with any shift, producers and manufacturers can either try to take advantage of new opportunities to gain greater sh, or possibly watch their existing s dwindle Only 8% of the world s globally traded wood products certified (FAO 2009) Countries which able to supply EU, US and other s first with certified or verified legal product will gain sh. Are SMFEs vulnerable to these shifts, or can seize this as an opportunity especially vis a vis their competitors

21 Which Which SMFEs: Compliance Burden How important their consumer s to global trade? Meeting legality verification for export s will be similar to the burdens that SMFEs have had in obtaining certification. Regulatory, legal and tenurial barriers to be recognized legal Cost of certification Auditing, management changes (e.g. establishing CoC) Human resources / skills access international s where certification may be more highly valued Many big retailers and their suppliers have already have a 5-10 years experience in sustainably produced wood.

22 Which Which Example: Vietnam SFMEs & Furniture How important their consumer s to global trade? U.S and EU account for over 80% of export value $200m: Total value of exports of timber and non-timber forest products by wood wood craft vilages Wood villages use 80% imported wood, 20% domestically sourced wood. Very little knowledge about legality of supply: Little documentation of origin No information about relevant regulations (let alone compliance No outreach on why they need to know

23 Which Which Example: China How important their consumer s to global trade? In 2011, 53% of China s wood import volume from high risk countries (CPI<50), down from 85% in 2007 Fragmented supply chain in China 100,000 individual companies, mainly SMEs Some consolidation in recent years in the export sector On-going initiatives Forest Management System seeking PEFC endorsement National Timber Legality Verification system launched 2009 Forest industry association due diligence systems mirroring EUTR

24 Which Which Bifurcation of Exports? How important their consumer s to global trade? Will companies that cannot export to US, Europe, Japan and Australia shift to buyers without environmental and social? Absolutely: Domestic s Middle East, India

25 Volume (Millions m3 RWE) Which Which Bifurcation of Markets / Exports? How important their consumer s to global trade? United States European Union Japan Africa South Korea Saudi Arabia Canada United Arab Emirates Hong Kong Thailand Singapore Australia